The "Peace Clause" expires The

The "Peace Clause" expires

The treaty creating the World Trade Organization included an agreement among the signatories, not to take each other to court for agriculture subsidies. This was called the "peace clause." This agreement was to last for nine years, and expired yesterday.

The Economist has a column on the peace clause, here: "Ditching the peace". The expiration of the clause may lead to an increase in WTO court cases, brought by nations that export agricultural products (particularly the 17 nation "Cairns" group, which includes Australian and Brazil) against the developed nations like the U.S. and European Union nations, which are egregious subsidizers. This may not be good for developed country support for the world trading regime:

"...But the great trading powers tolerate the WTO's rulings in the spirit of "you win some, you lose some". America may have lost on export tax breaks and steel tariffs, but it won on bananas and beef hormones.

With the expiry of the peace clause, however, the great trading powers - who are also the great subsidisers - may lose rather more than they win. Their enthusiasm for the WTO may wane. If so, they may choose to shrug off any retaliatory duties slapped on their exports. It may be less painful to ignore the ruling, neglect their WTO obligations and face the sanctions, than to abide by the ruling and face their own irate farmers. A country such as Brazil, after all, can block only a tiny fraction of European or American exports. Angry farmers, on the other hand, can block their roads..."

Geitner Simmons at Regions of Mind posted on this topic two days ago, here: "Ag subsidy disputes". Simmons provides links to newspaper stories and a Tech Central Station column by Michael Standaert on this expiration of the peace clause: "Give War a Chance".

Both the Economist and Standaert refer to a paper by Richard Steinberg of the UCLA Law School and Timothy Josling of Stanford on this issue: "When the Peace Ends: The Vulnerability of EC and US Agricultural Subsidies to WTO Legal Challenge ". The abstract reads:

"Article 13 of the WTO Agreement on Agriculture, known as the "Peace Clause," precludes most WTO dispute settlement challenges against a country that is complying with the Agreement's liberalization commitments - until 1 January 2004, when the Peace Clause will expire. This article evaluates the strength of the main legal theories likely to be used in challenges to EC and US agricultural subsidies after expiry of the Peace Clause, and then employs economic techniques (regression analysis and equilibrium modeling) to meaningfully apply the soundest legal theories to economic data about agriculture trade. We conclude that when the Peace Clause expires, many commodity-specific EC and US agricultural subsidies will be vulnerable to legal challenges under Article 6.3(a)-(c) and 6.4 of the WTO Agreement on Subsidies and Countervailing Measures. The remedy would require that such subsidies be withdrawn or that appropriate steps be taken to remove their adverse effects. Non-subsidizing developing countries can be expected to bargain in the shadow of this legal vulnerability, demanding that the Community and the United States commit to further subsidy reductions and a shift toward tariff-and-decoupled-payments systems, in exchange for extension of the Peace Clause."

The Economist story has a useful sidebar with links to several other resources on the clause.

P.S. Jan 2: Peter Gallagher doesn't expect the expiration will have much impact ("The "peace clause" expires "). Complaints, which will require a determination that a given subsidy has "seriously predjudiced" another nation, are hard to prove. Remedies, involving removing the cause of the problem, don't necessarily require removing the subsidy - so subsidizing nations have some flexibility in choosing their mode of response.